Reservation Price

Overview

The reservation price is the price of product for which a buyer (or seller) is indifferent between having the product or having an amount of money equivalent to the price. That is, if the the price of an object is higher than a buyers reservation price, she will not transact. Likewise, if the price is below the sellers reservation price, the seller will not transact.

Note, the reservation price of the buyer and the seller are usually not the same. When a transaction occurs, both the buyer and the seller are better, which can be measured by the difference between the actual price agreed to and the reservation prices of both parties.